California home sales hit six-year low

Despite the happy-talk from realtors, the housing recovery flounders on low volume, sustained only by low inventory.

Most housing analysts expected sales to increase in 2014. They believed an increase in sales and an increase in price would represent “escape velocity,” a virtuous circle where rising prices increases demand and causes more sales and rising prices; in the past, this would have worked because lenders would extend toxic financing terms to new buyers to keep the party going, but the new mortgage regulations changed how real estate markets work. With those products now banned, the party ends when prices get too high — as it should.

In Bold California housing market predictions for 2014, I said sales volumes would decline because investors would pull back and owner-occupants would not step up to take their place, particularly with prices and mortgage interest rates so much higher. Starting the new year, most people preferred to sustain their delusional optimism, so housing pundits and financial reporters clung to their notions of a robust housing recovery. As reality set in over the last several months, first they blamed the weather for declining sales, then they erroneously blamed the lack of inventory (this implies pent-up demand that isn’t there, so it’s more palatable). The reality is that prices are too high relative to income and buying power; affordability limits both sales volumes and price growth.

An estimated 32,923 new and resale houses and condos sold statewide in March. That was up 28.2 percent from 25,680 in February, and down 12.8 percent from 37,764 sales in March 2013, according to San Diego-based DataQuick.

Last month’s sales were the lowest for a March since 2008, when 24,565 homes sold – a record low for the month of March. California’s high for March sales was 68,848 in 2005. Last month’s sales were 23.9 percent below the average of 43,251 sales for all months of March since 1988, when DataQuick’s statistics begin. California sales haven’t been above average for any particular month in more than eight years.

Any way you look at sales, the data doesn’t show strength.

Raw sales numbers should be adjusted for population, which makes them look even worse.

So how far below normal are sales really trending?

Of the existing homes sold last month, 7.4 percent were properties that had been foreclosed on during the past year. That was down from a revised 8.0 percent in February and down from 15.0 percent a year earlier. California’s foreclosure resales peaked at 58.8 percent in February 2009.

Foreclosures are not a current factor in the market. The can kicking through loan modification and governmental delays removed foreclosures from the market.

Short sales – transactions where the sale price fell short of what was owed on the property – made up an estimated 7.4 percent of the homes that resold last month. That was down from an estimated 9.3 percent the month before and 18.7 percent a year earlier.

Lenders stopped approving short sales in circumstances when the sellers had other assets — as they always should have. Strategic default and short sale should only have been a viable option for those people without other assets. In any case, the lack of approved short sales has removed those sales from the market, and it effectively removed all the underwater properties from the market as well.

Fully 9.1 million U.S. residential properties were seriously underwater, representing 17% of all properties with a mortgage in the first quarter, according to RealtyTrac’s U.S. Home Equity & Underwater Report for the first quarter of 2014.

To be seriously underwater, the combined loan amount secured by the property is at least 25% higher than the property’s market value.

“U.S. homeowners are continuing to recover equity lost during the Great Recession, but the pace of that recovering equity slowed in the first quarter, corresponding to slowing home price appreciation,” said Daren Blomquist, vice president at RealtyTrac. “Slower price appreciation means the 9 million homeowners seriously underwater could still have a long road back to positive equity.”

This is where the missing MLS inventory is located. All these borrowers require a short sale, and since banks won’t approve the sale unless the seller surrenders their assets, if the loanowner want to keep any of their other assets, they can’t list and sell their homes. (See: Low housing inventory is an indicator of residual mortgage distress)

The lack of MLS inventory is causing prices to rise despite the lack of demand. So why is demand so low?

More potential buyers are out trolling the nation’s neighborhoods for their dream homes. Unfortunately, they are finding little to look at and, even worse, they are finding higher prices than they expected.

“People quite frankly came out and got sticker shock because they’re coming out to shop now, or they came out in January and February to shop, and they picked up the price sheet and saw, ‘Wow that’s way more than I thought’ because home prices had gone up so much in 2013,” said Brad Hunter, chief economist at Metrostudy.

Strong year-over-year price gains are starting to take a bite into housing affordability, particularly in the West …

says Lawrence Yun, NAR’s chief economist. “At the same time, home prices have been rising faster than incomes, while mortgage interest rates are above the record lows of a year ago. This is beginning to hamper housing affordability.”

“Added housing supply will help moderate price growth this year, and should help to stem erosion in affordability, but mortgage interest rates are projected to rise above 5 percent by the end of the year,” Yun says.

How will higher interest rates and the higher prices they predict supposed to help affordability? Does he even think about the nonsense he says? Added supply will only help affordability if that supply pushes prices down!

Perhaps realtors are finally ready to stop using the cold weather excuse and face reality — or not.

54 responses to “California home sales hit six-year low”

The Federal Reserve wants normal, organic, economic growth. They envision a future where they can ease back out of stimulus and allow the economy to stand on its own. Yet going all the way back to the late 80’s, every time they attempt to raise interest rates, the country falls back into recession.

It’s starting to become very clear what is coming. Simple economics and an open mind paint the future. It’s contrarian at this point to believe America, or the entire Western World & Asia for that matter, are facing a deflationary economic reset.

Just look at the facts:

Most inflationists (like Peter Schiff) said the Fed would never taper, yet the Fed did taper. Most inflationists said after the taper begun, interest rates would rise, yet interest rates have gone done. Most inflationists said gold would rise much further as the Fed stimulated more, yet gold has declined significantly since QE 2 ended (2nd Q of 2011).

The only way to get out of this World Wide Economic Zombie epidemic is to allow the reset to happen. I do believe there are members of the central banks around the world, including the Federal Reserve, that are starting to get this. The more stimulus from central banks, the less impact it has, creating more deflationary forces. We have simply reached the moment (Minsky Moment) when the shit is gonna hit the fan.

Average fixed mortgage rates declined for the second straight week, bringing them to a six-week low—and easing affordability conditions slightly as the homebuying season gets under way.

Per Freddie Mac’s Primary Mortgage Market Survey, the 30-year fixed rate mortgage (FRM) this week averaged a rate of 4.27 percent (0.7 point), down from 4.34 percent last week. A year ago, the 30-year FRM sat at 3.41 percent.

At the same time, the 15-year FRM averaged 3.33 percent (0.6 point), down from an average 3.38 percent.

Frank Nothaft, VP and chief economist for Freddie Mac, said the latest decline fits with a disappointing—though not dismal—construction report showing homebuilding rising at a rate of 2.8 percent in March.

“Also, permits fell 2.4 percent in March to a seasonally adjusted annual rate of 990,000, which followed a slight downward revision of 4,000 permits in February,” Nothaft said.

Numbers were mixed in adjustable rates. According to Freddie Mac, the 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.03 percent (0.5 point), down from 3.09 percent in the prior week, while the 1-year ARM averaged 2.44 percent, up a few basis points.

Bankrate.com also saw a drop in its weekly national survey, recording the 30-year fixed at 4.43 percent and the 15-year fixed at 3.48 percent.

“Mortgage rates dropped for the second week in a row amid mixed economic news abroad and in the United States,” said Polyana da Costa, senior mortgage analyst for the finance site. “Despite some recent economic news, the United States is still perceived by investors as one of the safest places to park their money.”

“The only way to get out of this World Wide Economic Zombie epidemic is to allow the reset to happen. I do believe there are members of the central banks around the world, including the Federal Reserve, that are starting to get this.”

I think they will continue to print money to paper over the deflation. Every central banker in the world believes they can print their way to prosperity, so I believe that’s what they will do. Some will print more and some will print less, but they will all print money until things improve.

I used to be more of an inflationists, then I stopped listen to chatter boxes on TV and the radio, and starting looking at the facts around the world. Peter Schiff said the Fed would never taper. They did, and he was wrong.

>>>>”What makes you think they won’t?”

Last year the Fed did almost 1 trillion in QE, and the govt ran a 650 billion dollar deficit, yet the GDP grew about 2.4% annualized, or approximately 400 billion dollars. WTF, we’re getting about $1 dollar of GDP growth for every $5-6 in new debt/stimulus. It simply is no longer working. We’re no longer receiving much benefit for all the future obligations we’re creating. The more they print, the less impact it has on the real economy.

recession will become buzzword once again and the legions of morons will clamor for gov and fed to ‘do something’. this taper is just a vehicle for letting the citizens know just how dependent we are on Fed suppression of interest rates

>>>”recession will become buzzword once again and the legions of morons will clamor for gov and fed to ‘do something’.”

We already know that will happen, and we already tried that to the point where the Fed has interest rates at 0% and did over 4 trillion in QE. They’re at the end of the road. Do you not see that? It’s over! There’s nothing else the Fed can do. The more they print, the less impact it has. There is no inflation. Yet there’s still massive amounts of deflationary forces that must be dealt with. They cannot stop it.

Do you honestly expect barack to come out and say, “Y’know guys, we tried the whole money printing thing and it didn’t really create a viable recovery, so we’ve decided to let the market set interest rates, end all MBS purchases, and balance the federal budget.”?

I’m glad you agree with me, but I’m not trying to enforce my opinion. I’m just here to report the news which most people are either ignoring because of inflationary dogma, or they’re oblivious. The facts that I’m describing are not my opinion … we are obviously in a deflationary cycle. The FED knows it, and they’re attempts to stop it have failed. When the Fed drops rates to ZERO for 5 years, and does 4 trillion in QE, and we still have no inflation, they failed. The Federal Reserve has FAILED!

President Obama made a choice to bail these Sons a’bitch’s out. He choose Timothy Geithner and reappointed Bernanke. He could have made bold choices and had a frank conversation with the American People. Now he’s paying the price of a failed presidency. He is worst than even GWB.

Lee, I don’t disagree with what you are saying, but I think despite the fact that diminishing returns set in years ago, they will keep printing money anyway. I don’t know if they will do this until inflation gets out of control, but I believe they will print until some form of artificial prosperity returns.

IR, we’ve had rates at 0% for the last 5 years. The Fed will have done over 4 trillion in QE by the end of this year. Since Obama we’ve borrowed over 7 trillion. So where’s the inflation?

I guess what I’m saying is I believe the Fed is at the end of the road. Sure, they could do more QE, but it still won’t work. Japan has done over 3 times the QE (per capita) as the USA, and they have NO INFLATION. NONE! This has been going on for 20+ years in Japan.

I digress, back to America … at some point, after 25+ years of perpetual stimulus from the Fed, we’ve reached the end. The Fed can’t do anything more to stop it other than expand future obligations with a lesser impact on the real economy.

They don’t have to … they already lost … their actions speak for themselves. They did 4 trillion in QE, and dumped rates perpetually for 25 years down to ZERO percent. The ammo is gone. Now all they can do is jawbone and throw impotent QE at the problem.

The Federal Reserve has FAILED! Though they’ll never admit it … they lost the war. It’s over.

Don’t go by what I’m saying, just look at WTF is happening around the world. The evidence speaks for itself … deflation.

First, yes you are absolutely correct that the Fed’s policy is not producing radical price increases.

I think what you are missing is the Fed’s intention. The result of the Fed’s action has been to ensure the stability and solvency of the TBTF banks. I doubt if the banks are solvent, but they are definitely more stable than in 2008. The Fed’s actions are not for the benefit of the economy, unless that benefit also benefits the Fed’s member banks. I guess you don’t have to call $4 trillion of created money, inflation, if you don’t want to, but that is where the term inflation came from; an increase in the money supply.

If the Fed wanted price increases and wage increases, which is what seems to be your definition of inflation, the Fed would not be paying interest on reserves to it’s member banks. The money is sitting in the reserve accounts because that is where the Fed wants it. You seem to think that the Fed had intentions of enabling price and wage increases. It did not. Why would you think that? Because that is what “economists” and “experts” and media mavins say? Because that is what Paul Krugman says? Because we, including myself, were taught that in Econ? The money is in the reserve accounts at the Fed because that is where the Fed and the Fed’s member banks want it. I wish I could remember where I read it, but my recollection is that after 2008, if a member bank wanted the Fed to buy the bank’s mortgage securities , that proceeds could ONLY be deposited in that bank’s reserve account at the Fed.

The banks were not allowed to loan out the money and create the fractional reserve cycle. Instead they are getting paid interest and using their reserves as collateral to borrow money which they are then using to speculate on the stock market.

I agree with most of what Lee in Irvine says except for the origins of the problem. Keep in mind, the trillions of dollars of Non performing loans and toxic bonds have never been written down. That bad debt is still being serviced and rolled over. (The big banks only wrote down roughly $550 bil when the losses should have amounted to over $5 tril) This is exactly what happened to Japan, the gov stepped in to preserve the zombie institutions and prop them up at the expense of the real economy. 20 years later, they are still fighting deflation.

The losses on bad loans and bonds has to be written down or it becomes an anvil that pushes down everything else.

The banks still need to be restructured. Even the Fed knows that. Just look at the way the Fed refused to let Citi issue dividends two weeks ago. That tells you what is really going on…..that the banks are still woefully undercapitalized.

What makes you think we will get out of this mess? Does it appear to you that our government or the Federal Reserve have done anything to get us out of this mess?

I had occasion to spend a week with some folks last summer, one of whom was a recently retired attorney from Deutsche Bank. He and I had some wonderful conversations over dinner and commutes and such. The thing I remember most was his telling me that Deutsche Bank and the other banks were doing everything they could to get things back to the way they were. And he and his associates thought that was the best course of action. He did not see any reason for change, nor had he ever heard from those he worked with that there any reason for change.

The bankers and the corporate elite are becoming more and more wealthy. Why would they stop now? Because it is not working for Joe 6-pack? Because wages are not increasing? Wall Street’s net worth is increasing.

I asked a question. I made no statement. I find it amusing that 99% of those who are interested and 100% of those who are not, believe everything they are told.

What I find more amusing is that people read and ingest only that which fits their paradigm no matter where the information is coming from.

Belgium has increased it’s holdings of US Treasuries by $146 billion in the last 41 days and yet I read nothing about it in the MSM when the Fed releases foreign bond holding reports. So much for the notion that, “Given the number of investors and reporters who carefully examine every detail of their activities, it’s hard to believe they could say one thing and do another without anyone noticing.”

And just who are “Caribbean Banking Centers” anyways? That entry was the 3rd largest holders of US Treasuries in 2013, and is now relegated to 4th, given the massive purchases by Belgium.

I don’t have evidence of anything, but that does not keep me from recognizing fabrication, decption, and dishonesty.

Again, how does anyone know the Fed is tapering? Or even easier, why would anyone think the Fed is tapering? The Fed WAS buying $45 billion in treasuries every month, and NOW they are only buying $30 billion? And Belgium is taking up the slack, plus buying the $105 billion that Russia put on the market last month? $105 billion? Do you have any idea what would happen to interest rates if $105 billion got sold into a real FREE market? Belgium just happened to have $105 billion laying around and thought, “Hey, those treasuires look like a real good deal, and we don’t have anything better to do with that money”? Belgium’s GDP is about $500 billion.

So, the answer to your question is no, I do not have any evidence. All I have is a very tiny bit of uncommon sense to know a bunch of hooey when I see it.

Please answer this: who benfits from Belgium’s buying of $140 billion of treasuries in the last month or two? And what would have happened if Belgium did not buy $140 billion in treasuries.

What I find more amusing is that people read and ingest only that which fits their paradigm no matter where the information is coming from.

I launched a diatribe below on this very issue.

I don’t have evidence of anything, but that does not keep me from recognizing fabrication, decption, and dishonesty.

Actually, I don’t disagree with your main point. The federal reserve probably is using these back-door mechanisms to support the dollar and buy Treasuries when countries like Russia try to dump them to hurt our economy. I don’t have a problem with that.

My point was that you don’t have any real evidence other than your suspicions. You have extrapolated the federal reserve’s clandestine actions in dealing with a one-time event, Russia’s dumping of Treasuries, to another totally unsubstantiated clandestine action of continuing to buy Treasuries when they said they were tapering. I see no evidence of the latter despite evidence of the former. If you can come up with something other than vague conspiracy theories, your contention would be more compelling.

If there is a good motivation and a good outcome, then why would it be hidden? Why not tell the truth? You see the good, right? But everyone else could not?

One time event? Belgium did not just buy the Russian $105 billion. The UK was buying US treasuries a year or so ago when China was selling. The UK has nothing better to do with their money than buy US Treasuries? Caribbean Banking Centers? Who exactly are they? They aren’t hedge funds. Hedge funds and the wealthy are looking for yield and they aren’t finding it is US Treasuries.

“If the federal reserve wasn’t going to taper, they had no real reason to say they were.”

Seriously? No reason to lie?

Let’s see, the public and media were screaming that the Fed’s monetary policy was only benefitting Wall Street and Joe 6-pack was getting reamed. Remember “Occupy Wall street”? Financial media was screaming about the the Fed’s balance sheet. And worst of all for the benefitters of QE I, II, III, and IV, the public and the media were starting to ask questions about where all this so called financial stimulus was going. No reason?

What was their compelling reason to announce the taper? They were facing no inflation pressure, and most politicians were happy to let them keep printing to stimulate the economy. Even the investment community was happy to see more printed money. If this was all theater, who was the play put on for?

Let’s see, the public and media were screaming that the Fed’s monetary policy was only benefitting Wall Street and Joe 6-pack was getting reamed. Remember “Occupy Wall street”? Financial media was screaming about the the Fed’s balance sheet. And worst of all for the benefitters of QE I, II, III, and IV, the public and the media were starting to ask questions about where all this so called financial stimulus was going

Really? What exactly has not gone up in price in the last few years? energy? housing? health care? college tuition? food? building materials? plastic? movie tickets? autos? plane tickets?

How are you defining inflation? I realize that most people now consider inflation to be rising prices, or in Lee’s case, inflation is rising wages.

If inflation is an increase in the money supply, I would suggest you check out the Fed’s balance sheet and the money supply. Of course, if the Fed is ignoring their balance sheet, they would feel no inflation pressure. Ignorance is bliss.

The Obama administration told asset managers last week that it was planning additional sanctions against Russia over the conflict in Ukraine.

Officials from the Treasury Department and the National Security Council met in Washington with mutual-fund and hedge-fund managers, according to a person who attended. Their comments sent a message that more sanctions are on the way and that investors, if they were concerned about the impact, should manage that risk, said the person, who asked not to be identified because the discussions weren’t public.

The meeting, convened a week before talks with Russia in Geneva that ended yesterday, left managers grappling with the question of whether the government intended to follow through, or was trying to trigger asset sales through the threat of sanctions, said the person. Former administration officials have said forcing Russia out of global financial markets is the strongest tool President Barack Obama has at his disposal in trying to defuse the crisis between Russia and Ukraine.

“A lot of firms on the buy side have cut their exposure to Russia,” Jack Deino, the head of emerging-market debt at Atlanta-based Invesco Ltd., said in an interview, talking about the industry in general.

Total sales are down 13% over the last year, but what about regular, non-distressed sales? Despite higher rates and prices regular sales are up 12% yoy. Subtracting out the short sales and REO from the above article’s total sales numbers you get 25,038 regular sales for March ’13 and 28,050 regular sales for March ’14, or a 12% increase.

It seems that the drop in sales is limited only to the distressed market segment, which I never considered part of the market to begin with. REO was only available to insiders and short sales could take 6 months and never close. Out of frustration, I stopped looking at these properties when my house hunt got serious.

Now, fewer investors are able to buy distressed houses and either flip them or rent them out because of a shortage of well-priced quality homes on the market. How is this a bad thing?

From a regular market view, sales are up and prices are up from last year despite the rise in mortgage rates. Comments?

” … which I never considered part of the market to begin with. REO was only available to insiders and short sales could take 6 months and never close.”

We made one offer on a short sale back in November of 2011 and closed within 2 1/2 weeks. It was one of the easiest re transactions I have been involved in and we have been living in the house since. Oh yeah, maybe one of the resaons the negotiations went quickly was because we made our low ball offer through the listing agent with the caveat that if he did not like our offer, we would take our offer directly to the seller.

That wasn’t my experience either. We made an offer on our short sale in Jan of 2010, and sellers finally got their banks approval in Apr of 2010. Seems as if the realtor agents had nothing to do with the process except as messenger for the bank people.

The only way a sale is a sale is a sale is if distressed inventory buyers view regular sales as reasonable substitutes, or vice versa. For this to be true, investors have to be willing to pay more and sacrifice cash flow or resale profits. Regular buyers have to be willing to endure the ordeal of buying a poorly maintained foreclosure or waiting several months to close a short sale. I doubt this happens for more than a super-minority of either group.

The facts are that the drop in sales is entirely a result of a drop in distressed sales. There were 4,626 fewer short sales in March vs a year prior, and 3,228 fewer foreclosure sales. Regular sales were up by 3,013.

Regular sales tend to be financed sales. Distressed sales tend to be cash sales since cash is king, and banks take all-cash no-contingency offers before a higher financed offer with inspection contingencies.

I think it’s a sign of market strength when the segment of the market that is predominantly financed gains market share from the cash segment in a rising rate environment. This certainly isn’t a sign of weakness, is it? If rates were having the expected impact on sales, then regular sales volume should be falling first, since most regular sales are financed sales.

I think YOY sales volumes are falling right now because of a change in how distressed inventory is being managed, not from market weakness. If rates hold steady at current levels, a year from now sales will be up and prices will be level as the change in distressed inventory management is baked in.

Since you bought your home, I believe you’ve developed a confirmation bias toward good news for housing.

You are smart and analytical, so you are able to see whatever pattern you want to see in data, and you can construct reasonable sounding arguments to back up your observation. The problem isn’t your analysis or your reasoning, it’s your bias toward data selection, IMO.

First, if it gives you comfort, I believe house prices will continue rising, not because the market is healthy, but because the manipulations are working. Think about it, if the market were healthy, would we have seen an 18-year low in purchase originations a couple of months ago? It takes a strong confirmation bias to ignore that data point.

Second, the powers-that-be have been manipulating the housing market with varying degrees of success since early 2009 in an attempt to prop up prices. I see no indication this behavior will change. If anything, after five years of trial and error, they’ve finally come up with strategies for market manipulation that work.

Third, I’ve presented mountains of evidence in a variety of posts showing a decline in sales and a leveling of prices since interest rates went up. Since I don’t believe the distinction between distressed and non-distressed sales is important, I haven’t done that analysis, but based on the data available, non-distressed pricing has fallen since interest rates went up.

I don’t mean to be harsh or overly critical, but one of the purposes of my writing and the dialog in the astute observations is to reveal and purge people’s faulty thinking, and confirmation bias is a common problem. People only make sound financial decisions when they view all the data objectively, and a selective review of data caused by confirmation bias is antithetical to good decision making.

You don’t have to accept my word for it, but I invite you to examine your thinking and ask yourself if you are looking for some specific viewpoint (house prices are going to rise forever) or if you are critically examining all the data to figure out what’s really going on. If you are comfortable with your view of the market after a self examination, I won’t mention this again.

I like alternate viewpoints on the blog, and I encourage people to express them. It helps keep me from developing my own confirmation biases and creating an echo chamber (It’s why I appreciate Mello Ruse’s and Jimmy’s comments so much.) I could be completely wrong about your confirmation bias, and if I am, I apologize, but my instinct tells me otherwise.

“From a regular market view, sales are up and prices are up from last year despite the rise in mortgage rates. Comments?”

You are creating your own reality. Sales are down, yet you come up with a point of view that tells you sales are up. That’s seeing what you want to see rather than seeing what is. It’s a classic example of confirmation bias.

I can’t speak for the overall market in OC, but I can say with confidence that closed sale prices on a $/sf basis for REGULAR sales in my area over the last year are way up. I track and record the same Redfin search, every week for active, pending and sold homes.

# SOLD is 66 vs 80;
ACTIVE is 80 vs 72;
PENDING is 49 vs 46.

The current low number of closed sales is a result of the low number of pending sales back in February. The number of pending sales has since nearly doubled to 49 from 26. Sales numbers should rise the next month or so as the pending sales close.

The number of closed sales rose last year from April to June, 80 to 104, so seasonality would explain a drop in sales from June ’13 to April ’14 as much as rising rates. April ’13 sales were high as a huge wave of homes went pending in February ’13 as all the distressed inventory dried up.

Thanks for the ‘confirmation bias’ assessment. I was beginning to wonder when you were going to respond with this. Isn’t this just an ad hominem attack? Well, I guess if you can’t win on the merits of the argument, you have to resort to the merits of the man making the argument.

Even so, I have to ask myself: am I guilty of seeking out facts that support my prior decision and ignoring contrary facts, or not? Based on the above data, I conclude the following: 1) with the exception of closed sales, volumes are about the same as they were a year ago (new Dodd-Frank regulations may have caused a slow-down in the number of pending sales immediately after mid-January); 2) prices are up from a year ago; 3) inventory remains tight with 1.74 active listings for every pending one (it’s actually tighter than that since many of the listings are way overpriced); 4) pending sales have jumped up over the last two months, but active listings haven’t.

Do these numbers change if I was seeking a home rather than have bought one? Nonsense. The facts are the facts. But the facts don’t always predict future events that well. You have to understand the why behind the facts too. First you need to know the what: for instance that sales are down. Then you need to know why they are down. The why matters.

I don’t suffer from confirmation bias. If anything, I love being proved wrong. Because when I am proved wrong, grounded in facts and rational analysis based on those facts, then I learn something. I am only trying to learn more about what the markets are doing by making what might appear to be outlandish arguments. If you just recite the company line you won’t learn anything. If you say that total sales are down because rates have risen and prices have risen, and I just nod my head, then neither of us learns anything. But, if I challenge this view, and you respond to it with facts or analysis that I don’t have or understand, then I learn something, and maybe you do too.

And, there are no conflicts between rational men. One man wins by winning, the other wins by learning… Ayn Rand, the Virtue of Selfishness.

I’ve also noticed your posts being much more bullish since you closed on your place, and even if you don’t have confirmation bias, you need to realize that your posts are coming across that way now. It’s not an ad hominem attack. It’s a valid observation that I think Irvine Renter meant constructively.

Your point about fewer distressed sales is valid because it is a separate type of buyer and seller profile, but at the same time I think you might be overemphasizing it. Look at the YoY inventory increase for OC and it’s clear that the market has slowed since last year. “Slowed” doesn’t mean prices will go down, but price increases will probably be more subdued and this cycle is probably closer to the top than the bottom.

Looking at the chart, my confirmation bias tells me that on a YOY basis distressed home sales are down, non-distressed sales are up, and non-distressed and distressed sales prices are both up.

There is a jump in prices for non-distressed homes that seems seasonal. If you draw a line through low in February ’12 thru ’14 you get rising prices. Same for the peaks in Jun/July.

Sales jumped up last year as rates rose because of irrational buyer fears of being priced out. This likely pulled sales forward into 2013 from 2014, much like the tax credits did in 2010 and dropped prices in 2011. Different this time due to lack of inventory so prices won’t be falling.

I look at that chart, and I see sales volumes down YoY (gray bars). Further, when isolating non-distressed sales (green line), I see median resale price down YoY (or just about to be). I know that over the last year interest rates went up significantly.

Based on those facts, I assume high prices and high interest rates have hurt affordability and fewer buyers are able to purchase non-distressed sales. I interpret that as a sign of market weakness foretelling ongoing weak sales, and if affordability becomes a bigger problem due to rising rates, a decline in prices.

I’m willing to entertain the idea I have a confirmation bias, but I don’t believe I have any attachment to whether prices go up or down. I own real estate, so if prices go up, I benefit personally, so I should be biased toward bullishness. I don’t own locally, so I should be biased toward bearishness due to that. I am cautious by nature, so I tend to see risks more than opportunities, so if I have an overriding bearish bias, it’s that one. Despite my bearish biases, I also believe house prices will continue to rise for the foreseeable future. What does that make me?

I wonder if we are looking at the same chart? I see sales falling month-over-month but not year-over-year. This chart is somewhat difficult to read with the slanted ordinate labels, but I read the February data as: 2012: 16k sales, 310k non-distressed median price; 2013: 15k sales, 340k price; 2014: 17k sales, 375k price. A classic rising trough scenario on level volume. Seasonal peaks are June 2012: 20k sales, 370k price; 2013: 28k sales, 420k price. Rising sales on rising prices.

I think the m-o-m trend is powerful, and may drive the y-o-y data negative by mid-summer, but it hasn’t yet. I wouldn’t be surprised if it did, since many sales were pulled forward with rising rates and prices.

The difference I see vs the housing bubble is that volumes are still at a very low level compared to the volumes in 2005, and never rose far above the volumes in 2009.

We don’t plan to ever sell our home, so rising prices don’t matter much to me. More equity doesn’t reduce my monthly payment. And, I’m smart enough to know that it’s better to earn interest than pay interest, so I won’t be taking out a home equity loan either.

I don’t think it’s a bad time to buy, however. With the exception of the affordability product era at the beginning of this century and the bust that followed, California has never been affordable to the average home buyer. There is a lot of demand, and limited supply. This will always be the case. So timing is important, but you will never intentionally time it perfectly, because there is never perfect data that signals market direction.

All you can hope for is to look for strong indicators. One strong indicator is what I call the “Too Good to be True” indicator of housing appreciation. Anytime prices are rising too quickly, they can’t possibly be sustained at that rate. The last two bubbles indicate that this rate is 3% mom. Once it hits this level, as it did in the late ’80s, ’00s, and again last year, you know something is about to change, and damn quick. This rate of appreciation is simply unsustainable, even short-term.

There is also the contrary indicator of: “Too Bad to be True” which is a drop of more than 3% mom. Again, you will never know exactly when this will stop, but you do know that assets will never go to zero. At some point people will start to think: “These prices are so cheap, I would be crazy not to buy.” The risk of future price declines is trumped by the intrinsic value of the asset. I distinctly remember seeing property prices when I was in Palmdale in 1997 and thinking how could I go wrong buying a house for 35k? I also remember when I was in Phoenix in 2009 for a week and thinking: “I can pick up a two-year-old house for less than a car payment.” One the other hand, I can also remember property prices jumping up here in 2006 and thinking: “How can prices keep rising like this?” Well, they can’t. And if you are thinking this, then probably a whole lot of other people are thinking this too, or they soon will be.

I don’t get either sense of the market right now. I don’t see prices being under or over priced. I think the trend is for prices to be under pressure as rates rise (Duh!). But it also depends on how quickly rates rise. The economy is not so strong that rapidly rising rates can be sustained. Consequently, the FED won’t let them rise until the economic situation dictates it,

I’m sure Lee disagrees with this, but remember that the FED runs the printing press after all. And there is no limit to the amount of debt deflation achievable by changing the value of the benchmark with which it is measured. See Japan. Like an actual bankruptcy, there is an optimal amount of debt that can be sustained, and if it can’t be sustained at current rates, then it has to be restructured. Bankers, like other symbionts, know that if the host dies so do they. There will never be a hard default on UST, a soft default, however, is already underway since 2008.

At some point, the rate value won’t matter as much as how fast the rates rise compared to how fast incomes rise. Rates rose about a point over a three-month period last summer on a rumor that the FED would be tightening. Since then, rates have been level to down slightly despite the FEDs actual tapering. Clearly, incomes are not rising fast enough to sustain a 1% rise in rates over a three-month period (4%/yr annualized). So rates have been level the last 9 months or so. This will continue until this level of rates generates enough economic activity that wages rise. Rising wages will result in rising rates, and so on.

An estimated 9.1 million U.S. residential properties were seriously underwater in the first quarter of 2014, according to RealtyTrac’s U.S. Home Equity & Underwater Report.

Seriously underwater properties, which are homes where the combined loan amount secured by the property is at least 25 percent higher than the property’s estimated market value, represented 17 percent of all properties with a mortgage.

Underwater properties in Q1 2014 decreased to the lowest level since RealtyTrac began reporting data in Q1 2012, and decreased from the previous quarter, Q4 2013, when 9.3 million properties were underwater.

“U.S. homeowners are continuing to recover equity lost during the Great Recession, but the pace of that recovering equity slowed in the first quarter, corresponding to slowing home price appreciation,” said Daren Blomquist, VP at RealtyTrac. “Slower price appreciation means the 9 million homeowners seriously underwater could still have a long road back to positive equity.”

Properties with positive equity increased, reflecting further positive shifts in the housing landscape.

“The universe of equity-rich properties—those with at least 50 percent equity—grew to 9.9 million representing 19 percent of all properties with a mortgage in the first quarter, up from 9.1 million representing 18 percent of all properties with a mortgage in the fourth quarter of 2013,” the report said.

Properties on the cusp of resurfacing, characterized by residential properties between 10 percent negative equity and 10 percent positive equity, increased to 8.5 million for the quarter, representing 16 percent of homes with a mortgage. Properties on the verge of recovery in Q4 2013 were 8.3 million, which was 17 percent of all properties with a mortgage.

Fewer distressed properties had negative equity as well, with 45 percent of all properties in the foreclosure process underwater. Foreclosed homes with negative equity fell from 48 percent in the last quarter of 2013, and were down from 58 percent in the first quarter of 2013.

“The relatively high percentage of foreclosures with equity is surprising to many because it would seem homeowners with equity could easily avoid foreclosure by leveraging that equity by refinancing or with an equity sale of the home,” Blomquist noted. “But many distressed homeowners with equity may not realize they have equity and in some cases have vacated the property already, assuming that foreclosure is inevitable.”